ACCT504 Case Study 3
(Learning Objective 5: Construct and use a cash budget) Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year’s statement of cash flows, which follows (amounts in thousands):
Cash Flows from Operating Activities
Collections from customers
Purchase of inventory
Net cash provided by operating activities 5,300
Cash Flows from Investing Activities
Purchase of equipment
Purchase of investments
Sale of investments
Net cash used for investing activities
Cash Flows from Financing Activities
Payment of long term debt
Issuance of Stock
Payment of cash dividends
Net cash provided by financing activities
Increase (decrease) in Cash
Cash, beginning of year
Cash, end of year
- 1. Prepare the Wang cash budget for 2014. Date the budget simply “2014” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 2014 to be the same as 2013, but with the following changes:
- a. In 2014, the company expects a 20% increase in collections from customers and a 30% increase in purchases of inventory.
- b. There will be no sales of investments in 2014.
- c. Wang does not plan to issue stock in 2014.
- d. Wang plans to end the year with a cash balance of $5,550.